Testing for Competitiveness of Markets for Long Distance Telephone Services: Competition Finally?

Testing for Competitiveness of Markets for Long Distance Telephone Services: Competition Finally?
MacAVOY, Paul
2004-10-06 00:00:00
Telecommunications regulatory policy is driven by rhetoric and myth concerning the “competitiveness” of long-distance service. Relying on behavioral tests for competitiveness, this review brings up to date analytical work establishing the pattern of competition or the lack of competition since the 1984 AT & T divestiture. Through mid 1997, the three large long-distance carriers in setting their price-cost margins have managed to carry through on a previously established strategy of tacit collusion in both message toll services and WATS-type business services. The remarkable results have been that price-cost margins increased while sales concentration declined. This general pattern is not contradicted by the most recent offering of 15-cent per minute “one price” on new discount plans since that too implies an increase in carriers' price cost margins as concentration continued to decline.
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Testing for Competitiveness of Markets for Long Distance Telephone Services: Competition Finally?

Abstract

Telecommunications regulatory policy is driven by rhetoric and myth concerning the “competitiveness” of long-distance service. Relying on behavioral tests for competitiveness, this review brings up to date analytical work establishing the pattern of competition or the lack of competition since the 1984 AT & T divestiture. Through mid 1997, the three large long-distance carriers in setting their price-cost margins have managed to carry through on a previously established strategy of tacit collusion in both message toll services and WATS-type business services. The remarkable results have been that price-cost margins increased while sales concentration declined. This general pattern is not contradicted by the most recent offering of 15-cent per minute “one price” on new discount plans since that too implies an increase in carriers' price cost margins as concentration continued to decline.